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Strategies & Market Trends : Coming Financial Collapse Moderated -- Ignore unavailable to you. Want to Upgrade?

To: Box-By-The-Riviera™ who wrote (337)	6/26/2001 8:10:23 PM
From: EL KABONG!!!	Respond to of 974

dailynews.yahoo.com Tuesday June 26 5:39 PM ET Experts See Warning Signs of Recession By Marjorie Olster NEW YORK (Reuters) - A New Economy recession will probably look a lot like an Old Economy recession, according to U.S. business cycle experts who are now seeing many of the classic warning signs of a such a downturn. A prolonged decline in industrial output, steadily rising unemployment and the bust of a boom in business investment are all adding up to the same type of weakening that characterized virtually every recession since World War II, analysts said. But there is hope that the unusually rapid and aggressive response already seen from the U.S. Federal Reserve (news - web sites) will turn the weakening domestic economy around, making any recession relatively short-lived. The Fed has already lowered the key borrowing rate five times this year by a total of 2.5 percentage points and is expected to cut rates again on Wednesday. ``Either we are in a recession or this is the worst non-recession ever,'' said Anirvan Banerji, director of research at the Economic Cycle Research Institute (ECRI). ``It's not different this time. It is following the classic pattern with minor variations.'' The Fed, the White House and Wall Street have all been optimistic that the largest economy in the world will narrowly escape a recession with the aid of massive Fed credit easing and large tax cuts just passed by the U.S. Congress. Optimists have pointed to resilient consumer spending and confidence as well as strong demand for housing, probably linked to the Fed's aggressive rate cutting. But the two key indicators of recession -- industrial production and employment -- are giving little cause for such optimism. Both are headed down the same path as in past recessions. ``Whether it's a slowdown or a recession is a question now,'' said business cycle expert Victor Zarnowitz, a former University of Chicago professor of economics . ``It is very difficult to detect.'' THE MEMO HEARD AROUND THE WORLD The National Bureau of Economic Research (NBER), the country's official arbiter of recessions, warned in a memo last week of a growing risk of recession. The memo, NBER's first such warning in the recent downturn, turned up the volume on recession talk. ``The data normally considered by the committee indicate the possibility that a recession began recently,'' the memo said. While many economists define a recession as two straight quarters of falling gross domestic product (GDP (news - web sites)) NBER defines a recession as a significant decline in output, employment, income and retail trade lasting more than a few months. Around the same time the memo came out, Wall Street economists were talking about an increasing probability that gross domestic product (GDP) would contract in the April-June quarter after rising at a paltry 1.3 percent annual rate in the first quarter. But the extent of the slowdown is still not clear. After a boom in U.S. growth in the late 1990s driven by business investment in new technology, the economy slowed dramatically in the second half of last year. The combination of sharply rising energy prices, interest rate hikes and the bursting of a bubble in overinflated technology stocks sent manufacturing into a downturn, burned up corporate profits and made jobs disappear. Industrial output has fallen for eight straight months and is down about 4.0 percent from its peak in September 2000, not much less than the 4.6 decline seen in the last U.S. recession in 1990-1991. ``You've never seen that outside of a recession,'' Banerji said. ``Assuming that we are already in recession, and I think that is a reasonable assumption, industrial production has already gone down for eight months and that is a longer duration than half the post-war recessions we have seen.'' U.S. non-farm payrolls fell 182,000 in April and 19,000 in May and a consensus forecast compiled by Reuters predicts a 51,000 decline in June. The June data is due out next week. There has been only one case since World War II when payrolls declined for three straight months outside of a recession, Banerji said. The decline in employment so far is only a fraction of that in past recessions. About 1.9 million jobs were lost in the last recession vs. 201,000 so far in the current downturn. Business cycle economists also track personal income and sales but say these are less important indicators. Personal income, which has risen in this slowdown, did not decline significantly in about half the post-war recessions, Banerji said. TECHNOLOGY MAKES A DIFFERENCE One of things that sets this slowdown apart from others in recent history is the extent to which business investment in new technology drove both the upswing and the downswing. ``I would say in this recession, more than in previous ones since World War II, overinvestment and bad investments were clearer than ever,'' said Zarnowitz. A collapse in capital outlays and technology stock prices eventually resulted in a huge overhang of inventory and massive overcapacity in industry. Interest rate cuts have only a limited impact on stimulating capital spending. Banerji sees another and potentially more serious difference this time around. There is a very real danger that all the major economies of the world are about to sink into a simultaneous recession for the first time in a quarter century. KJC